Developer of affordable housing, LBS Bina Group Bhd, is looking to tap into a relatively new buyer segment by using its recent acquisition of a mall to showcase its properties.

Group managing director Tan Sri Lim Hock San says as the mall is in an area with a predominantly Malay population, it would be able to attract new buyers by showcasing the group’s properties throughout the mall.

“We are looking at targeting more Malay buyers. Previously, we would have to rent space in another shopping mall and we were very limited in what we could do. But now that this is our mall, our space, we will be able to permanently showcase what we have. I believe this will be attractive to the shoppers there,” he tells FocusM in an interview.

He is also confident that the group will be able to turn around the prospects for M3 Mall in Gombak which it acquired in September for RM105 mil. With the acquisition, LBS Bina enters the retail sector and mall management.

While analysts are upbeat about the company’s overall business performance, they are neutral on its purchase of M3 Mall. Interestingly, the mall with a net lettable area of about 182,609 sq ft is 83% occupied. However, it is bleeding cash.

Gerbang Mekar Sdn Bhd (GMSB), owner and operator of M3 Mall, had incurred a loss after tax of RM5.7 mil for its financial year ended Dec 31, 2016. It has a net book value of RM92.1 mil.

In a recent report, PublicInvest Research says it is neutral on the acquisition as the mall is seeing between RM1 mil and RM2 mil in operating losses each year. It says LBS is only likely to see meaningful financial contribution in the next two to three years.

Building up experience

“Importantly, however, it does enable the group to gain insights into owning and running a mall at a relatively low entry cost, experience which will come in handy when it eventually develops a larger-scale mall in its flagship Bandar Saujana Putra township,” the research house says.

PublicInvest is maintaining its outperform call on the stock, with an unchanged target price of RM2.33.

Meanwhile, JF Apex Securities Research says it is also neutral on the deal, citing the mall’s net loss of RM5.7 mil in FY16.

“We only expect the mall to break even in 2-3 years’ time. For the time being, LBS would envisage a net loss of RM1-3 mil per annum for the mall. Furthermore, we opine that the overcrowded retail mall sector in the Klang Valley and highly competitive retail landscape do not bode well for the group,” it says.

The research house is maintaining its buy call on LBS, with an unchanged target price of RM2.27.

Having posted seven straight quarters of positive growth, LBS Bina’s share price is hovering at about 5% below its historical high of RM2.11 on May 2. On Nov 8, the counter closed at RM1.99.

M3 Mall was acquired for RM105 mil in cash and property contra payments. In the deal, LBS Bina entered into a share sale agreement with Jadi Wawasan Sdn Bhd and Chua Choon Yang to acquire 100% of GMSB.

Although the mall had performed poorly, LBS Bina says in a Bursa filing that the purchase was a “low entry to the retail business where the income is recurrent in nature with capital appreciation potential on the assets”.

Plans for a revamp

Lim wants to turn around the mall by increasing foot traffic. “We plan to revamp the mall, and there is a team that is planning community activities to help boost the numbers of people there. Although people have questioned our choice of location, the mall actually has over 80% occupancy, and there is a good catchment of people since there are residential blocks above and an MRT station nearby.

“The terms of the deal were favourable and flexible for us, since we got to contra our property as part of the payment for the acquisition,” he says.

Lim is confident that the group will be able to meet its 2017 sales target of RM1.5 bil

The purchase of M3 Mall involves upfront payment of RM12 mil in cash for the GMSB acquisition, a further cash payment of RM5.2 mil to be paid in five instalments over nine months, a repayment of RM40.8 mil in shareholders’ advances via a contra of units developed or to be developed by the group.

LBS Bina will also assume the obligations of a RM47 mil loan taken by GMSB from Kuwait Finance House.

M3 Mall is part of a larger mixed development project known as Medan Mega Melati which includes the M3 Residency, two blocks of 16-storey serviced apartments built atop the mall and completed in the first quarter last year.

The mall is positioned as “an everyday mall” that provides necessities to the community in the catchment areas and targets the middle-income group in Gombak and its vicinity.

Looking ahead

Lim says the group will be launching the first phase of its LBS Alam Perdana township in Ijok, Selangor on Nov 11.

The first phase will comprise 1,653 units of double-storey link houses and townhouses, which are expected to be priced at RM470,000, and between RM368,000 and RM388,000, respectively.

The estimated total gross development value of the township is RM3.43 bil.

Another 1,342 units of medium-cost housing will be launched on an adjacent site next month, but Lim declined to provide details.

As for the group’s construction arm, ML Global Bhd, Lim says he is looking at ways to expand its capabilities. “I am looking at ways to expand ML GLobal, as well as the joint venture it has with Sany Construction to not only handle internal jobs for the group, but also to take on government jobs,” he says.

MoU with China firm to make IBS products

In July, ML Global signed a memorandum of understanding with Sany Construction Industry Development (M) Sdn Bhd to work together to manufacture industrialised building systems (IBS) precast products for building projects within the next six months.

Sany Construction is a locally incorporated company of Chinese group Sany Group Co Ltd. Sany Heavy Industry, a core subsidiary of the group, is the largest provider of precast concrete equipment solutions in China, accounting for 50% of the market.

On the international front, LBS’ China joint venture Zhuhai International Circuit Ltd could potentially be getting a third-party investor.

“The master plan has been conceptually approved, but as we need to think about further investment, the number is quite big so maybe we may get a third-party investor to join,” Lim says.

The project has been facing delays following a change in government officials in Zhuhai City and the need to make various adjustments to the plan. LBS, which has been actively involved in the management and consultancy services of Zhuhai City since 1993, inked a memorandum of understanding with Zhuhai Jiuzhou in September 2015.

Lim is confident that the group will be able to meet its 2017 sales target of RM1.5 bil, given what it has in hand.